Annual Report 2012 - Swiss Life

136 Consolidated Financial Statements
approved by management. The cash flows include inflation. External valuations for individual real
estate assets are performed on a rotating basis, but at a minimum each property is evaluated every
three years.
Impairment of held-to-maturity and available-for-sale debt instruments and
loans and receivables
As a Group policy, held-to-maturity and available-for-sale debt securities and loans and receivables
are assessed for impairment when a significant decrease in market value related to credit risk arises,
namely after a downgrade of a debtor’s rating below single B– after initial recognition (i.e. CCC or
lower according to Standard and Poor’s or equivalent) or when payments of principal and/or interest
are overdue by more than 90 days.
Impairment of available-for-sale equity instruments
At each balance sheet date, an assessment is made whether there is objective evidence that an availablefor-sale
equity instrument is impaired. A significant or prolonged decline in the fair value of the
security below its cost is considered objective evidence of impairment. In this respect, a decline of 30%
or more is regarded as significant, and a period of 12 months or longer is considered to be prolonged.
Insurance liabilities
Past experience, adjusted for the effect of current developments and probable trends, is assumed to be
an appropriate basis for predicting future events. Actuarial estimates for incurred but not reported
losses are continually reviewed and updated and adjustments resulting from this review are reflected
in income.
Insurance liabilities are established by using appropriate estimates and assumptions on mortality,
morbidity, exercise of policyholder options and investment returns. With regard to mortality for
example, these estimates are typically based on standard industry tables. Management makes allowance
for expected improvements due to continued advances in medical science and social conditions.
For insurance contracts and investment contracts with discretionary participation features with
fixed and guaranteed terms, the definition of estimates occurs in two stages. At inception of the contract,
estimates of future deaths, surrender, exercise of policyholder options, investment returns and
administrative expenses are made and form the assumptions used for calculating the liabilities during
the life of the contract. A margin for risk and uncertainty (adverse deviation) is added to these
assumptions. These assumptions are “locked-in” for the duration of the contract. Subsequently, new
estimates are made each year in order to determine whether the values of the liabilities so established
are adequate in the light of these latest estimates. If the valuation of the liabilities is deemed adequate
the assumptions are not altered. However, if the valuation of the liabilities is deemed inadequate, the
assumptions underlying the valuation of the liabilities are altered (“unlocked”) to reflect the latest
estimates; no margin is added to the assumptions in this event.
For insurance contracts and investment contracts with discretionary participation features without
fixed and guaranteed terms, future premiums can be increased in line with experience. The assumptions
used to determine the liabilities do not contain margins and are not locked-in but are updated
at each reporting date to reflect the latest estimates.
Swiss Life – Annual Report 2012